IFC and Commercial Bank structure landmark $ 65 m facility for SMEs

The International Finance Corporation (IFC), a member of the World Bank Group, has extended a seven-year US$ 65 million (approximately Rs 7.4 billion) financing facility to the Commercial Bank of Ceylon PLC to expand the latter’s lending to Small and Medium Enterprises (SME).

IFC’s largest financial markets investment in Sri Lanka to date, the facility is also the first future flow-backed financing done for a bank in South Asia, and is expected to help about 20,000 small businesses, create improved economic conditions that reduce poverty, and improve access to credit in underserved areas, including the north and east of Sri Lanka.

The milestone financing agreement was signed in Colombo last week with IFC Vice President – Asia Pacific Karin Finkelston and Commercial Bank Managing Director Amitha Gooneratne as principal signatories. Central Bank Deputy Governors K.G.D.D. Dheerasinghe and Ananda Silva, Commercial Bank Chairman Mahendra Amarasuriya and senior officials from the IFC and the bank witnessed the event.

Speaking at the ceremony, Gooneratne said the US$ 65 million facility would not only improve the bank’s operations, but would also be very beneficial to the country and serve as a catalyst for other financial institutions to structure similar facilities.

Thanking the IFC for providing this innovative structure, he noted that Commercial Bank had established a strong relationship with IFC from the time of its first investment in the Bank in 2003.

“The need of the country in the post-conflict period is to have development flowing through to all provinces,” Gooneratne added. “The national Budget for 2012 places emphasis on the development of the SME sector and there are special concessions for banks that engage in SME lending.”

Finkelston said: “At IFC, we are constantly working to provide innovative ideas which support private sector development. This project with Commercial Bank fits perfectly into our strategic agenda towards fostering SME growth and financial inclusion. As the first future flow backed project for us in Asia, we hope to replicate this structure elsewhere.”

IFC believes that the future flow structure employed in this transaction with Commercial Bank – and previously used in other regions of the world – may be applicable for other banks in the emerging markets of South Asia. The structure allows financial intermediaries with robust foreign currency flows to access longer-term financing with more attractive terms and conditions compared to unsecured borrowings.

Sri Lanka is a focus country for IFC’s programme in South Asia. Its committed US$ 200 million portfolio covers projects across a range of sectors including infrastructure, tourism, renewable energy, banking, and health care, in addition to advisory support to small and medium enterprises.  Through its Advisory Services, IFC promotes sustainable growth among small and medium enterprises by facilitating access to finance and offering capacity-building and training opportunities.

Established in 1969, Commercial Bank is the largest private bank in Sri Lanka, and the only Sri Lankan Bank listed in the world’s Top 1,000 Banks. It operates a network of 210 computer-linked branches and service points in Sri Lanka and the country’s single largest ATM network of 472 terminals.

The bank has been adjudged ‘Best Bank in Sri Lanka’ for 13 consecutive years by ‘Global Finance’ Magazine and has won multiple awards as the country’s best bank from ‘The Banker,’ ‘FinanceAsia,’ ‘Euromoney’ and ‘Trade Finance’ magazines. Commercial Bank’s operations in Bangladesh comprise of 17 service points.

IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. IFC helps developing countries achieve sustainable growth by financing investment, providing advisory services to businesses and governments, and mobilizing capital in the international financial markets. In fiscal 2011, amid economic uncertainty across the globe, IFC helped its clients create jobs, strengthen environmental performance, and contribute to their local communities — all while driving its investments to an all-time high of nearly $ 19 billion.